4 minute read
The Order of Operations for Startup Financials
The Order of Operations for Startup Financials: Paving the Way for Fundraising
@SVB_Financial
Jason Kobus, Managing Director - Platform Strategy, Silicon Valley
Bank
Jason specializes in financial product development and integration. Prior to SVB, Jason worked for Deloitte in audit, data privacy, and cybersecurity. He immigrated from Toronto, Canada where he was VP of Infrastructure and Data Services for Merrill Lynch Canada. He holds a B.A. in Finance and Economics from the University of Western Ontario and numerous technical and risk certifications.
As an accounting professional, you can do no greater service to an entrepreneur than to prepare their finance stack for future funding or financing opportunities. Founders need to focus on building their business and product, so you can save them tremendous time by optimizing their financial operations...
Here are several ways to
help your clients prepare for the next step in their startup journey:
1. Get their basic financial operations in order
First, get all of the company’s financial data in one place. By using an accounting application like Xero, you can transform data chaos into financial order. Founders should transition away from using their personal bank accounts for running their business.
Then, help set up the company’s bank feeds and automate vendor invoicing, payments and bank reconciliation. You may recommend setting up multiple bank accounts to increase control, but ensure that the client controls the money and delegates only the appropriate access for each bank account. Typically, advisor access to bank feeds is fine but not for international wires. established their company, connect them with a lawyer or reliable platform to help them with the process.
2. Financial integration and automation
Integrating systems and automating processes will let you focus on planning. Do away with low-level accounting drudgery and unleash your inner advisor super powers!
If a client has just launched its product, help the team set up easy ways to get paid, such as merchant services and marketplaces (which you, as the advisor, can use as well). Fintech applications really put your bank data to work for you, especially with automatic categorization algorithms.
Expense management is another function which can leverage data and automation. Xero offers this as a native capability for smaller companies as part of its platform, upgrade for partners in the Xero Marketplace. Show your clients that while their sales team needs to spend money to grow their customer base, they must remain vigilant to ensure that expenses stay under control and the reimbursement process is efficient. Expense apps can auto-generate
as well as through an easy an IRS acceptable receipt using a bank provided transaction feed for smaller transaction amounts, and apply machine learning, AI and virtual assistance to help control expenses.
3. Find the right finance professional to help set the stage for investment
The right finance professional will provide validation that financials are in some form of order. This can be a fractional CFO on a temporary basis if your client can’t afford someone full-time. Payroll and tax both have drastic legal implications if done incorrectly. Plus, it’s always great to have someone experienced in your corner!
help your clients create a sensible chart of accounts so that bankers and investors can more easily evaluate your performance. For instance, how about risk? Are your clients integrated with prevailing automation tools to avoid errors and the risk of someone stealing their money? Xero’s new Assurance Dashboard is perfect for this purpose. It detects accounting irregularities, which can be harder to attract investment beyond
precursors to fraud.
4. Start them on the funding track
As a trained accountant equipped with data and analytics, Xero advisors are in an excellent position to help tell the financial story of a startup. To attract prominent funding is another, though this
investors and interest bankers, startups need to show that they not only have a strong team and plan, but that they can also quantify key financial performance indicators.
Set up financial reporting so that your startup clients always have current financials that will help them put their best fundraising foot forward. These are simple,
questions that will turn a startup’s “burn” into a “virtuous cycle.” For example, how much will you make per customer (customer lifetime value or “CLTV”), and how much does it cost to attract and keep them (customer acquisition cost or “CAC”)? If you are selling product, what does your revenue function look like (monthly run rate accelerating or “MRR”).
5. Find the right funding sources
Fundraising is hard and it’s even initial funding from immediate friends and family. If nothing else, you can help to direct your clients towards possible funding options.
Angel investors are one great option; these are operators within the startup ecosystem who lead syndicates of accredited investors that invest in startups. Seed stage but critical, economic survival
is occurring later and at larger amounts than in the past. SVB hosts many events across the world to educate founders on this stage of fundraising. For startups that are further along and seeking a series A, venture debt could also be an option. Venture debt is not a fit for every company; nearly half of all venture debt raises occur near a Series A equity round with a reputable firm or notable angel. You should also compare more traditional forms of working capital that rely on existing assets (accounts receivable, inventory, equipment, etc.) to support your client’s cash conversion cycle.
In the end, having finances in order is an essential part of the fundraising process. Optimizing your startup client’s financial operations helps them demonstrate continued success milestones, and these are often required aspects of venture debt covenants.
Be the hero with your clients and set them on the path to funding!
